Labor Shock Reopening Stimulus Talks..

4/9/2012 5:31 AM ET

Market perception of the March FOMC minutes created a furor last week, with traders seeing no scope for any additional stimulus forthcoming in the near future. However, economists do not rule out the possibility completely. State Street Advisors has premised any potential stimulus on the economy losing momentum or inflation remaining below its mandate consistent rate of 2 percent over the medium term. This is precisely why traders scrutinize any piece of incoming economic evidence meticulously to deduce if it confirms any of the pre-conditions necessary for making the Fed lean towards another round of quantitative easing.

The U.S. non-farm payrolls report released last week showed that the economy added 120,000 jobs in March, the smallest job gains in five months. The increase was far below the 2000,000 plus forecast by economists. The private sector added 121,000 jobs, while the government trimmed 1,000 jobs. Nevertheless, the jobless rate based on the household survey ticked down 0.1 points to 8.2 percent despite the number of employed people declining by 31,000.

FTN Financial attributed the weather for the strength seen in January and February and the offsetting weakness in March. According to the firm, if the distortion in the payroll numbers is due to weather distortion and if all of it were reversed in March, then April and May could see job gains in the range of 200,000 plus once again. On the other hand, if the March trend extends into April and May, we may have to brace for a soft patch as was seen post the recovery both in 2010 and 2011.

The Institute for Supply Management's manufacturing survey showed that its manufacturing purchasing managers' index rose to 53.4 in March from 52.4 in February. Of the 18 industries surveyed, 15 reported growth and two contracted. The new orders index declined 0.4 points yet remained above '50' at 54 and the production index rose 3 points to 58.3. The employment index also increased, rising 2.9 points to 56.1.

The sector survey showed that its non-manufacturing index unexpectedly fell to 56 in March from 57.3 in February. The business activity index fell 3.7 points to 58.9 and the new orders index slid 2.4 points to 58.8. The order backlogs index slipped into contraction territory, declining to 49.5 from 53. Meanwhile, the employment index rose 1 point to 56.7.

Meanwhile, the Commerce Department said U.S. construction spending unexpectedly fell 1.1 percent month-over-month in February. The previous month's reading was downwardly revised to show a drop of 0.8 percent compared to 0.1 percent drop estimated initially. Spending on private and public construction declined 0.8 percent and 1.7 percent, respectively. Among private construction, spending on residential construction remained unchanged, while spending on lodging, commercial, office and transportation construction declined.

A separate report released by the Commerce Department showed that orders for manufactured goods were up 1.3 percent month-over-month in February compared to expectations for a 1.5 percent increase.

The minutes of the March FOMC meeting showed that only 2 members were interested in additional monetary policy easing, while at the January meeting 'a few' members were considering some additional actions. The stance precluded any easing move. At the same time, there were no indications that the central bank would begin to normalize interest rates earlier than its late 2014 itinerary.

The unfolding week's economic calendar is filled with a host of Fed speeches, including two public appearances by Federal Reserve Chairman Ben Bernanke. Traders may also focus on the Beige Book, the jobless claims report and the Reuters and University of Michigan's preliminary consumer sentiment reading.

The Commerce Department's trade balance report for February, the Labor Department's consumer and producer price inflation reports for March, the import and export price indexes for March, the Commerce Department's wholesale inventories report for February, the Treasury's monthly budget report and Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.

The trade balance is expected to show that that export growth quickened, while imports may have also increased due to higher oil prices. BMO Capital Markets is of the view that trade may have deducted from first quarter growth.

The headline consumer price inflation is expected to edge down in March, as the impact of higher gasoline prices may have been neutralizes the deflationary impact of lower home heating costs. The year-over-year rate is also expected to decline modestly, given the faster rate of increase in fuel prices in the year-ago period.

Monday

Bernanke will speak to an Atlanta Federal conference at Stone Mountain, Georgia at 7:15 pm ET.

Tuesday

The Commerce Department is due to release its wholesale inventories report at 10 am ET. Economists expect wholesale inventories at the end of February to show a 0.6 percent increase.

In January, wholesale sales edged down 0.1 percent month-over-month compared to a 0.4 percent increase in inventories. On a year-over-year basis, wholesales sales and wholesale inventories were up 7.9 percent and 9.4 percent, respectively. Inventories to sales ratio was at 1.15 compared to 1.14 in December.

Boston Federal Reserve Bank President Eric Rosengren is due to speak at the Atlanta Fed conference in Stone Mountain, Georgia at 10:30 am ET. Minneapolis Federal Reserve Bank President Naryana Kocherlakota is scheduled to speak to the Southern Minnesota Initiative Foundation at 12:15 pm ET.

Additionally Lockhart is due to deliver the opening remarks at Atlanta Fed conference on "Financial Reform: The Devil's in the Details" at 12:45 pm ET.

Wednesday

Lockhart will deliver more welcoming remarks at the Atlanta Fed conference at 8:20 am ET.

The export & import price indexes for February, which gives the changes in the prices of non-military goods and services traded between the U.S. and the rest of the world, are due out at 8:30 am ET. The consensus estimates call for a 1 percent month-over-month increase in import prices and a 0.3 percent increase in export prices.

Import prices rose by 0.4 percent in February after coming in unchanged in each of the two previous months. Economists had expected import prices to increase by 0.6 percent. Excluding a 1.4 percent increase the price of fuel imports, import prices actually fell by 0.1 percent in February compared to a 0.1 percent increase in January.

Export prices also increased by 0.4 percent in February following a following a 0.2 percent increase in January. The increase in export prices compared to economist estimates for a 0.3 percent increase.

Kansas City Federal Reserve Bank President Esther George will speak to the 21st Annual Hyman P. Minsky Conference on Debt, Deficits and Financial Instability at 9:30 am ET.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended April 6th at 10:30 AM ET.

Crude oil stockpiles jumped by 9 million barrels to 362.4 million barrels in the week ended March 30th, climbing above the upper limit of the average range.

Distillate inventories were unchanged yet remained in the upper limit of the average range. Meanwhile, gasoline stockpiles fell by 1.5 million barrels, although remaining in the upper limit of the average range.

Rosengren is also scheduled to speak at the Atlanta Fed's Financial Markets Conference, chairing a discussion of Money Market Mutual Funds at 10:30 am ET.

The Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts, at 2 PM ET. The report is normally released about two weeks before the monetary policy meeting is held.

The Treasury Budget, a monthly account of the surplus or deficit of the federal government, is due to be released at 2 PM ET. The budget is considered an indicator of budgetary trends and the thrust of fiscal policy. Economists expect a deficit of $188.7 billion for March compared to a deficit of $231.7 billion for February.

St. Louis Federal Reserve Bank President James Bullard is due to deliver opening remarks at the Homer Jones Memorial Lecture, at the Federal Reserve in St. Louis at 4 pm ET. Meanwhile, Federal Reserve Vice Chair Janet Yellen will speak to the New York University Money Marketeers on "The Economic Outlook and Monetary Policy" at 7:30 pm ET.

Thursday

The trade gap data for February is due out at 8:30 am ET. Economists estimate that the trade gap narrowed slightly at $51.7 billion in the month. The trade gap measures the difference between imports and exports of both tangible goods and services.

The trade deficit widened to $52.6 billion in January from a revised deficit of $50.4 billion in December. Economists had expected the deficit to narrow to $48.4 billion from the $48.8 billion that had been reported for the previous month.

The Labor Department is due to release its customary jobless claims report for the week ended April 7th at 8:30 AM ET. Economists expect claims to edge up to 359,000.

For the week ending March 31, the level of new claims for unemployment came in at a seasonally adjusted level of 357,000, a decline of 6,000 from the previous week's revised average of 363,000.

And while the previous figure was revised up somewhat from the 359,000 initially reported, this week's numbers come in lower than the 360,000 predicted by most economists.

The U.S. Labor Department is scheduled to release its report on the producer price index for March at 8:30 am ET. The index measures the average change over time in the prices received by domestic producers of goods and services. Economists expect the headline index for February to have risen by 0.3 percent and the core producer price index may have increased by 0.2 percent.

In February, producer prices rose 0.4 percent month-over-month, with higher energy responsible for much of the upside. However, the annual rate of producer price inflation cooled off to 3.3 percent from 4.1 percent, benefiting from an easier comparison. The monthly increase in core producer prices was 0.2 percent, in line with estimates.

Philadelphia Federal Reserve Bank President Charles Plosser is scheduled to speak to the National Economists Club in Washington on the "Economic Outlook" at 12:30 pm ET. Kocherlakota will speak to the White Bear Lake Area Chamber of Commerce in a suburb of St. Paul, Minnesota at 1 pm ET. Also, Federal Reserve Governor Sarah Bloom Raskin will speak to business and community leaders at a Fed conference on "The State of the Economy," in Los Angeles at 3 pm ET.

Friday

The consumer price index for February is scheduled to be released at 8:30 am ET. The index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Economists expect the headline index to have increased 0.3 percent compared to a 0.2 percent increase in core inflation.

Consumer prices rose 0.4 percent month-over-month in February, with the annual rate of consumer price inflation holding steady at 2.9 percent. Higher gasoline prices were responsible for much of the increase. Core consumer prices were up a tamer than expected 0.1 percent on a monthly basis, while annually the rate was 2.2 percent, down 0.1 percentage points from a month-ago.

The preliminary report of the Reuters/University of Michigan's consumer sentiment survey for April is scheduled to be released at 9.55 am ET. The consumer sentiment index is expected to remain unchanged at 76.2.

Bernanke will also speak to the russell Sage Foundation and The Century Foundation on "Rethinking Finance" at 1 pm ET.